Due to the soaring price of Bitcoin in 2017, number of people who are interested in Cryptocurrency is increasing rapidly. Thousands of new Cryptocurrencies are issued throughout the world. In addition, means to raise funds for a new Cryptocurrency, “ICO (Initial Coin Offering)” is rapidly expanding. ICOs attract many investors in the world, which makes Cryptocurrency business booming.
However, the Cryptocurrency industry is quite new, and many unfamiliar words are used. What is more confusing is some words are used with different meanings depending on individuals.
This time, I will explain the definitions of words frequently used in the Cryptocurrency world. I will explain in simple words for beginners, so please take it easy and check them.
Definition of Cryptocurrency
The major Cryptocurrency exchange in Japan, “bitFlyer” defines Cryptocurrency as following;
A digital currency, or cryptocurrency, is an electronic currency which employs encryption as a security measure. Public key encryption, hashing and digital signatures are some of the forms used to provide security.
In other words, Cryptocurrency is an encrypted currency in P2P network on a decentralized blockchain.
The word “Cryptocurrency” is a combined word of “crypto” and “currency”. “Crypto” means “secret” or “hidden”, and “currency” means “the system or type of money”.
Cryptocurrency is sometimes confused with electronic money. Electronic money is just a variation of legal currencies such as Japanese Yen or US Dollar, so it is totally different from Cryptocurrency. They are confusing because electronic money is sometimes called “Digital Currency”.
Definition of Coin, and Token
In Cryptocurrency world, the word “Coin” is often used. Coin usually means “a metal money”, but in the world of Cryptocurrency, “Coin” is used to call a currency implementing the original Blockchain (including hard fork).
The similar word with coin, “Token” is also used quite often. Token usually means “a round piece of metal that you use instead of money”. There are people who use “Coin” and “Token” with the same meaning, but “Token” is the original coin issued on the existing Blockchain (developed by another company).
For example, a Token implementing Ethereum platform is leasing Ethereum Blockchain (it is like entrusting the management to Ethereum), and royalty needs to be paid by Ethereum (to be precise, Ether or Gas).
Please note that there are 2 types of Cryptocurrency, Coin and Token.
Definition of Token Economy
Token Economy means “economic circle where Cryptocurrency is used”.
The legal currencies like Japanese Yen or US Dollar that we usually use are issued by the government or the central bank. We measure the value of goods and services, or rich and poor by the amount of legal currency.
In Token Economy, a company, an organization, or even an individual can issue Cryptocurrency (Token) and sell it, not a government.
For example, please imagine you issued Token A and sold it. People who are interested in Token A purchase it. It leads to an increase in demand for Token A and increase the value of the Token. If Token A is used to buy and sell goods and services, Token A economy will be created. This economic circle created by Token use is Token Economy.
Here’s other examples; you know many point system such as airline mileage points, credit card points, retail store points (e.g. Walmart, Carrefour, and Aeon, etc.) and e-commerce site points (Amazon, etc.). Airline mileage points can be exchanged to air ticket or other service of the Airline or group companies. E-commerce site points can be exchanged to various goods and services in the e-commerce site.
It may be easier for you to imagine those points replaced to Cryptocurrency.
The advantage of Token Economy is that even an individual can issue Token and sell it without being evaluated by banks, or without establishing a company. Furthermore, the appearance of Dapps (Decentralized Applications) can make it more decentralized, fair, transparent and lower the cost of operation. Token can be created and sold by individual values, which makes it possible to add value to the things that has not been valued so far. This is a big change brought by Token Economy.
On the other hand, the disadvantage of Token Economy is that Token liquidity is not stable because the legislation is still under development. And in Token Economy, the value of an individual can be easily visualized.
It can be said that the era of personal values came with the advent of Token Economy.
The industry of Cryptocurrency is still in dawn, and new technologies are also in use, so we see many unfamiliar words. But it is no doubt that Cryptocurrencies will spread further into the world, and we will have more chances to use them in daily life. From now on, deepen your understanding and enjoy the new economy created by Cryptocurrency.